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Thread: How would you invest $11,000?

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    Senior Member ivy44's Avatar
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    How would you invest $11,000?

    Ok, through a quick real eastate deal, I had just made 31,000. I paid off 20,000 in bills,ect. And now I have 11,000 just sitting there in my checking account and Im not sure if I should invest it into stocks, Bonds, CDs, or whatever. All I know is I have more then enough in my savings/checking, bills are paid and I need to start investing. How would you invest the $11,000??

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    God/dess A_Guy's Avatar
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    Default Re: How would you invest $11,000?

    If you're not that familiar with investing, I would go ahead and open an account with Vanguard (or another similar firm) and invest in something like the following:

    1) Money Market account - similar to a checking account; earns interest, you can write checks, and you can move money from one account to the next. This would be your cash account with Vanguard
    2) Index Fund - such as a S&P 500 index fund - it is a fund investing in each of the S&P 500 index companies. Historically, I believe it has made on average 10% or better each year.
    3) Bond Fund - just for diversification purposes only. I would just invest a little bit here. It will reduce the overall risk of your portfolio, and consequently reduce your potential earnings (and at the same time reduce your potential loses).
    4) Small Cap Fund - A fund similar to the S&P 500 index fund that invests in smaller sized companies.

    If it were me, I would probably invest soemthing like 25% cash, 40% Index Fund, 10% Bonds, 25% Small Cap respectively (or $2,750, $4,400, $1,100, $2,750)

    but that's just my recommendation. I'm sure others have some great ideas also.

    Edit: Another consideration is a Roth IRA. Melonie could explain it the best, but essentially it is a tax-free retirement account. At your age, start investing in one of these today with $3K-$5K per year, and you'll have a nice amount of cash on-hand (a million or better) when you are 60-65.

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    God/dess doc-catfish's Avatar
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    Default Re: How would you invest $11,000?

    Remember you will be due for capital gains tax on that sale. What matters after that is how far off you're going need the rest of that money.

    If you don't have an emergency reserve built up to cover at least six months of expenses, I'd put it into some safe interest bearing account.

    If you have a good emergency reserve and think you won't be needing this money for awhile, I'd suggest a nice stock index fund or two, preferably of the no load variety.
    Former SCJ now in rehab.

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    God/dess Emily's Avatar
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    Default Re: How would you invest $11,000?

    Quote Originally Posted by doc-catfish
    If you don't have an emergency reserve built up to cover at least six months of expenses, I'd put it into some safe interest bearing account.

    YES!!!!

    Just assumed you did, but just in case, do you own your own home?

  5. #5
    Pamela
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    Default Re: How would you invest $11,000?

    Me, i would invest the rest of the money (if it were mine) in Healthsouth.

    Pamela

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    Default Re: How would you invest $11,000?

    Anything A_Guy listed would be good, but be sure you're looking to invest (and therefore, not need to liquidate) your money for at least five years.
    Idealism is fine, but as it approaches reality, the costs become prohibitive.

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    God/dess montythegeek's Avatar
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    Default Re: How would you invest $11,000?

    My lordy I am in deep doodoo. My mind is working like DocFish. You said nothing about taxes. You are looking at a hefty tax bill in less than 45 days--estimated taxes on that capital gain. Do not try to avoid paying it by the due date because the penalties will be nasty if you pay late. You have a 0% chance of flying under the radar and your ducks need to be in a row.

    Now there is question number 2 the IRS will ask. "Where did the income come from to invest to get the gain?" If you were smart you paid taxes on it to start with so you heiney is covered. With these issues behind you, you can invest the balance. At 27 with no immediate need to tap the funds let it compound tax free in a Roth IRA if you have the "earned icome" to justify it. If you wil need the money before then a more conventional investment is in order.

    Pamela is a nice lady, but her investment advice stinks, even if Health South were a really good investment(I do not know). You do not want all tour eggs in one basket with this. You want a combination of companies. A possible $11K pool is not an efficient way to buy enough stocks to diversify. Put it in a S&P500 index fund for a while until you saved enough to buy other stocks. It is low fee investment cost and the returns will match the market. Before that though you need a reserve for disaster as was mentioned already.

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    Banned Katrine's Avatar
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    Default Re: How would you invest $11,000?

    Definately pool at least 1/3 of the remainder, after tax liability, into a RothIRA. Mine isn't doing that well YET, but it is finally picking up!

    Talk to a financial advisor about creating a nice diversie portfolio (hey, in a couple of months, ask me when I'm certified! )

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    Banned Melonie's Avatar
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    Default Re: How would you invest $11,000?

    Not to take the thread off-topic, but with the rumblings in Washington over Social Security reform you may want to think twice about getting involved in an IRA. The reason is that if one of the methods eventually used to save the program from bankruptcy is 'means testing', then saving money in an IRA may only have the end result of reducing the size of Social Security check that you'll eventually be eligible to collect !

    Also, as Monty points out, the tax consequences of this real estate transaction are going to be significant, both in terms of capital gains tax due on the sale of the house, and on previous reporting of income and previous payments of income tax which allowed you to buy the house in the first place. If you realized a net $31,000 capital gain, and the cap gain tax rate is 15%, you'll need to send in a check for estimated taxes by June 15th in the amount of $4,650 federal plus whatever state (if your state collects cap gains tax). Assuming your butt is covered in these areas ...

    Right now, with current worldwide economic conditions, I'd consider investing in gold or silver metal or a tracking stock like CEF.

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    God/dess Emily's Avatar
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    Default Re: How would you invest $11,000?

    So don't invest in an IRA because Social Security MIGHT be reduced?

    Sorry, Mel, you usually give great advice, but if that were the case, then wouldn't all investments would be affected? Why just single out IRAs?

    The governement has made the tax benefits towards the individual retirement plans the way it has because it's trying to encourage people to save for their retirement....not penalize them.

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    Default Re: How would you invest $11,000?

    Well without the complete story I have a couple of questions are you paying a mortgage on another place ( your primary residence ) ? And do you make enough money to buy another house with your profit this should avoid the huge taxes if I am not mistaken . Although real estate can cost you a lot up front I have never lost on this type of investment . I guess we all agree invest in something low risk .

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    Default Re: How would you invest $11,000?

    Sorry if you take the money on the sale and invest in a new place this will help you avoid the taxes .

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    Senior Member ivy44's Avatar
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    Default Re: How would you invest $11,000?

    I have the $$ for all of the taxes about to come my way. Honestly, putting my $ into another house to rent out will give me a headache!! Now, I did buy another house for myself to live in, but its all paid off. I do not have a mortgage. I am more interested in another style of investing such as Stocks,bonds,IRAs, ect. I really liked Melonies' responce with investing in the the gold,silver metals. That made alot of sence to me. -This is all still pretty confusing, Ill have to do some more research. Has anybody invested in Gold/silver? And what is your oppinion w/ IRAs? Thanks

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    God/dess A_Guy's Avatar
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    Default Re: How would you invest $11,000?

    Quote Originally Posted by ivy44
    Has anybody invested in Gold/silver?
    Yeah - I have a 2 pound gold medallion in the shape of a dollar sign that I wear around my neck... It's blingin' yo



    Other than that, no. No I have not

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    Default Re: How would you invest $11,000?

    Sorry, Mel, you usually give great advice, but if that were the case, then wouldn't all investments would be affected? Why just single out IRAs?

    The governement has made the tax benefits towards the individual retirement plans the way it has because it's trying to encourage people to save for their retirement....not penalize them.
    Think about what you just posted. Yes indeed the gov't is encouraging people to save for their own retirement ... for the covert purpose of reducing the amount of money that the gov't will have to 'give' them when they retire ! IMHO it is exactly because IRA's , 401k's etc have been receiving gov't granted tax advantages for retirement purposes all of those years that these assets will be the first to fall under a Social Security 'means test' - the argument being that the gov't has been making annual 'payments' towards these retirement accounts in the form of lost tax revenue, therefore the money being withdrawn from an IRA, 401k etc ALREADY includes a gov't contribution (which it does in the form of IRA and 401k contributions not being taxed as income, as well as tax exempt dividend and interest earnings over the years).

    In regard to other types of investments, Social Security payments are ALREADY reduced in proportion to other sources of retiree income i.e. stocks dividends, bonds interest, etc., so I doubt that they could add a second 'means test' based on the underlying stock or bond value as well. And these other investments were purchased with after-tax dollars, as opposed to IRA or 401k investments which were purchased with pre-tax dollars. With these other investments there is absolutely no linkage to a retirement program, whereas the IRA and 401k investments are specifically directed at retirement.

    Has anybody invested in Gold/silver?
    yes, I have a 'small' collection of gold and silver bars.

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    God/dess doc-catfish's Avatar
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    Default Re: How would you invest $11,000?

    Quote Originally Posted by ivy44
    I am more interested in another style of investing such as Stocks,bonds,IRAs, ect.
    And what is your oppinion w/ IRAs? Thanks
    IRA's aren't an investment type like say stocks, bonds, certificates of deposit, precious metals etc, as they are a vehicle for keeping the returns on your investment out of Uncle Sam's coffers (or in the case of non-Roth IRA's, deferring those taxes until you're retired and hopefully in a lower tax bracket). IRA's can contain savings accounts, CDs, stocks, bonds, mutual funds, REIT's, precious metals, etc.

    There are several institutions where you can start an IRA like banks, S&L's, credit unions, insurance companies, mutual fund companies, and brokerage firms, but each IRA custodian/trustee is limited to the types of investments that they deal with. Considering your contributions to an IRA would be a long term investment that you're going to need to keep in place for 30+ years, I would personally only start an IRA from a mutual fund or brokerage firm.
    Former SCJ now in rehab.

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    Banned Melonie's Avatar
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    Default Re: How would you invest $11,000?

    Hey Doc, care to offer an opinion on the future chances of IRA, 401k money etc. being used as a 'means test' to reduce the size of future Social Security checks ? As you point out, these are indeed 'long term' commitments, but for a fact there is no guarantee that the rules which apply today won't be changed well before the IRA/401k owner actually reaches retirement age.

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    Default Re: How would you invest $11,000?

    Melonie,
    There is no guarantee that the saver today will be alive to collect a nickel of soc sec.
    Any political party which proposed and passed a means test of Social Security on anyone but multimillionaires in annual income would be banished to the scaprheap in the next election. 5 Socialists in Cambridge Mass would vote for them and no one else. Any means testing would instantly create a 25% of the population coalition to destroy social security altogether.

    The upper-middle class is already getting shafted on social security in 2030, and GWB's compromise to price index incomes over 100k or so while low wage workers get a wage index would only make it worse. The Republicans would not allow the taxes and the Democrats would not allow it because all those Teamsters, government employees, and UAW members with big pensions would get shafted by it.

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    Default Re: How would you invest $11,000?

    Put it in an ING account while you spend a few weeks/months figuring out where you want to invest. Don't jump in without doing LOTS of your own research. You have to figure out how much risk you're comfortable with, how much you want to invest where and for how long...

    Personally I'd do pretty much what A_Guy recommends, but add in a riskier long-termer like emerging markets and maybe some individual stocks if you want to play around.

    Feature costumes for sale!

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    Default Re: How would you invest $11,000?

    Quote Originally Posted by doc-catfish
    Remember you will be due for capital gains tax on that sale. What matters after that is how far off you're going need the rest of that money.
    Not necessarily. Gains from the sale of your primary residence (where you lived during two out of the last five years) are excluded from gross income (an above-the-line deduction that allows you to still take your standard deduction and avoid itemizing). You can realize a tax free gain on selling your house of up to $250,000 (if you're single) and $500,000 (if you're married). Not a bad way to make some tax-free cash.

    26 U.S.C. 121

    (a) Exclusion.--Gross income shall not include gain from the sale or exchange of property if, during the 5-year period ending on the date of the sale or exchange, such property has been owned and used by the taxpayer as the taxpayer's principal residence for periods aggregating 2 years or more.

    From a tax perspective, use your 401(k) deduction (I think it's $5k/yr right now). You will get an exclusion from gross income on that, meaning you won't pay taxes on the $5k you put into the account until you withdraw from the account. Beyond that, try to invest in things that you can hold for more than one year. Some food for thought: The average rate of return on the S&P500 index fund since 1970 is 12.2%. If you're 25 today and want to retire at 55, putting away $5k now in that fund should yield around 32x your original investment, or about $160,000 30 years from now. Do that every year for 30 years and you'll have $160k of income per year until you're 85.

    There are three types of income you can have from investments with different tax consequences.

    First, you can have a short-term capital gain, which is taxed at regular rates (up to 35% if you're having a good year). Short term gains are those which result from selling capital assets (e.g. stock) that you have held for less than one year.

    Second, you can have a long-term capital gain, which is taxed at a maximum of 15%. These result from selling a capital asset held 1yr or more. These gains are figured by taking the sale price of the stock and subtracting your cost (called a tax basis). You're only taxed on the gain (the difference between the two numbers).

    Third, you can have dividend income. This is income that is paid "with respect to stock" meaning a distribution to shareholders of profits made by the corporation. It is taxed at a maximum of 15%, just like long-term capital gains, but you don't get to subtract any of your cost of acquiring the stock -- the entire dividend is taxable.

    With these in mind, buying stocks and bonds allows you to hold them for >1 year and get cheaper tax. This includes index funds, which are traded like stocks. Mutual funds, on the other hands, will never qualify for long-term capital gains rates because the company running the fund will never hold stock for >1 year -- it would have to pay corporate tax on any of the gains it realized on the investments at the end of the year if it did.

    I hope this helps.

    Greg
    Last edited by qmetellus; 05-20-2005 at 06:08 AM.

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    Default Re: How would you invest $11,000?

    Hey Greg you sound very knowledgeable on the subject. What's your take on the proper tax treatment of buying and selling 1oz gold bars (NOT coins, commodity bars) ?

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    Default Re: How would you invest $11,000?

    I'm pretty sure that gold bars will be considered capital assets. Assuming you held it for more than a year, you'd be taxed on a long-term capital gain at a max of 15%. Buy it today for $100, sell a year and a day later for $200, your gain is $100, and your tax would be $15 or less, depending on what tax bracket you're working from (probably the 15% max would apply).

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    Veteran Member MsTopaz's Avatar
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    Default Re: How would you invest $11,000?

    i'd pay off my credit card debt.
    why do some people still have to fight to get the same opportunities that are given to others?

    reclusiveness...is a good thing.

    the greatest revenge in the world...is success.


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    Default Re: How would you invest $11,000?

    I'm out of the loop because I've been buying a house, making home improvements, paying off school loans, etc., and trying to build up a good reserve for emergencies.

    I was going to tell you to invest in rental properties if the conditions are favorable in your area, but apparently that's not what you're interested in. You could also make 2 or 3 appointments with different advisors and see who you connect with and whose ideas you like.

    It really depends on your goals and risk tolerance

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    Banned Melonie's Avatar
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    Default Re: How would you invest $11,000?

    Now what can you find with a return of 7%?
    Oil and Gas stocks for sure !

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